NetSuite: Acqusition Target or Rising Cloud Contender?

By Tony Kontzer For more than a decade, cloud vendor NetSuite has toiled in relative obscurity, watching the headlines go first to Salesfore.com, and later to the likes of Amazon.com and Google. But on the heels of its first-ever user conference May 8-12, 2011, in San Francisco, NetSuite has moved into the forefront of the cloud computing discussion.

In contrast with last year's Salesforce.com user conference, which was highlighted as much by CEO Marc Benioff's inspired theatrics as it was by the company's announcement that it would begin offering a free version of its Chatter social networking tool, the tone of NetSuite's SuiteWorld gathering was all business. Put it this way: Whereas Benioff's entertaining keynote featured him pulling an iPad from his pants, the most dramatic moment during NetSuite CEO Zach Nelson's keynote was a brief appearance by Oracle President Mark Hurd.

Admittedly, Benioff's press-grabbing persona has served Salesforce.com well, as the company has been profitable for years, whereas NetSuite, with its more austere approach, has yet to post a profit. But my guess is that the company's fortunes will change with the introduction of NetSuite Unlimited, a cloud computing solution designed to serve large-scale enterprises. For a starting price "north of $1 million per year," said Nelson, customers will get a package of "unlimited" product features, applications, and storage, as well as the ability to add as many subsidiaries as needed, all bundled with 500 seats. (More seats will bump up the cost.)

While a million bucks is hardly chump change, it compares favorably with the annual cost of running and maintaining a complete suite of enterprise applications. Add in some of NetSuite's other new wrinkles--integrations with Google and Yammer (the latter of which clearly targets Salesforce's Chatter), a performance boost from the incorporation of Oracle's Exadata Database Machine, a reseller partnership with Accenture, and an array of new ISVs now building apps on company's SuiteCloud platform--and NetSuite is clearly primed for a step up in the market.

The array of moves collectively address pent-up frustration among devoted customers who have been waiting for NetSuite to take the product to the next level. They greeted the announcements with a combination of excitement and relief that the cloud solution they depend on is maturing along with them before they'd have to make a switch.

"I have been using NetSuite since 2005, and frankly was puzzled that it was not moving as quickly as I believed it should have," said Tom Kelly, managing director of T-Edward Inc., which manages NetSuite environments for nine small companies. Kelly says the Yammer and Google integrations will enable his NetSuite users to be more productive, and that NetSuite Unlimited establishes the company as a true enterprise software vendor, cloud or not. "This puts NetSuite on a par with Oracle and SAP."

It's highly likely that NetSuite's efforts to add scale, boost performance, and integrate new capabilities played a role in two big customer wins it announced: Groupon and Qualcomm (the latter was lured in part by the presence of, and validation by, Accenture). Groupon alone went live with NetSuite in five countries in just 6 weeks, will add 10 more this month, and plans to have deployed NetSuite in 26 countries by the end of June.

But amid all the seemingly positive steps NetSuite took this week, there was a faint specter of concern as the appearance of Hurd and incorporation of Exadata had some wondering if the company might be ripening into an attractive acquisition, especially given the spotty results Oracle and SAP have had with their respective cloud offerings. Oracle CEO Larry Ellison, who owns the majority of NetSuite's shares, stands to win in that scenario, regardless of who might acquire the company. But it seems unlikely he'd sit idly by and watch his rival snatch up one of his personal pet projects.

However it plays out, the end result will likely go a long way toward determining who wields the power in the future cloud computing market.